Tax concessions are available from the ATO for a range of not-for-profit organisations, including charities, public benevolent institutions and other types of incorporated associations. Concessions include exemption from income tax, rebates to reduce fringe benefits tax (FBT) payable, and goods and services tax (GST) concessions.

Not-for-profit status

To qualify for these tax concessions, an organisation must be a not-for-profit organisation. A not-for-profit organisation is one that does not operate for the financial gain of its members. (See Incorporated Associations for more information on being a not-for-profit association.) Incorporated associations are by legal definition not-for-profit organisations, and therefore many will be eligible for one or more tax concessions.

To benefit from any tax concessions, an organisation must be able to show that it is a not-for-profit organisation. One of the distinguishing features of a not-for-profit association is that its rules contain a not-for-profit clause.

For example, the Act requires an incorporated association to include in its rules a provision along the following lines:

The property and income of the association shall be applied solely towards the promotion of the objects or purposes of the association. No part of that property or income may be paid or otherwise distributed, directly or indirectly, to members of the association, except in good faith in the promotion of those objects or purposes.

Associations that do not have an equivalent clause in their rules may not be eligible to remain incorporated, and will not be able to demonstrate their not-for-profit status to the ATO.

Access to some ATO tax concessions also requires an association to have an appropriate dissolution clause in its rules. The association must be able to demonstrate that it is a not-for-profit organisation, both while operating and when winding up.

An example of a dissolution clause that is acceptable to the ATO, and that is also lawful under the Western Australian association’s legislation, is:

In the event that the association is dissolved, any surplus property that remains after the dissolution and the satisfaction of all debts and liabilities shall be transferred to another association, incorporated under the Act, that has similar objects and that is not carried on for the profit or gain of its individual members.

Please note that it is important that the dissolution clause will only allow for a transfer to another association incorporated in Western Australia. The words “incorporated under the Act” provide for this requirement.

Charities

Many incorporated associations are also charities. In broad terms, a charity is a fund or an institution that pursues one or more charitable purposes that are of public benefit. According to the ATO, for an organisation to be a charity, it must:

be an entity that is also a (charitable) trust fund or institution (simply being incorporated does not necessarily make an association an institution as far as the ATO is concerned);

be not-for-profit;

exist for the benefit of the public or the relief of poverty; and

have a sole purpose that is a charitable purpose under the law.

Clearly, not all associations fit the ATO requirements to be recognised as charities.

Charitable purpose

In terms of Australian taxation law, charitable purposes are those directed towards:

the relief of poverty. Associations formed for relieving poverty will be charitable, as long as the benefit is provided to persons in a particular class and not for the benefit of a particular poor person.

the advancement of education. Associations that are formed to advance knowledge and provide for greater educational opportunities will be charitable;

the advancement of religion. Not all religious institutions are charitable. To qualify for a charitable status, an association must have a religious purpose that is for the benefit of the community. For instance, religious associations formed to convert people will not be charitable;

the provision of child care services on a not-for-profit basis. (This is a relatively recent addition by the ATO to the meaning of charitable purposes); and

other purposes that are beneficial to the community. An association may be charitable if it is formed for purposes that are beneficial to the community.

Examples include the protection of animals, promotion of health and welfare, caring for the aged, and the preservation of cultural sites and historical buildings. While a group's objectives may be 'beneficial to the community', this does not necessarily make it a charity.

Sporting, recreational, cultural, social, political or promotional purposes are not considered charitable.

Associations that are primarily for the benefit of their members are not charitable.

Please note that the meaning of charitable purposes as outlined above is not the same as the meaning of charitable purposes under the charities legislation of Western Australia (the Charitable Collections Act 1946). The ATO meaning is much broader, which means that an association could be considered a charity for tax purposes, but might not require a charitable collections licence under Western Australian laws (see Fundraising).